Donuts files $10 million lawsuit to stop .web auction

Donuts has sued ICANN in an attempt to block the auction of the .web gTLD this Wednesday.
The gTLD portfolio registry filed a lawsuit in California on Friday, seeking over $10 million in damages and a temporary restraining order to stop the auction going ahead.
The complaint alleges breach of contract, negligence and unfair competition and seeks a court declaration that the covenant not to sue signed by all new gTLD applicants is unenforceable.
According to Donuts, ICANN breached its duties by not fully investigating the allegation that rival .web applicant Nu Dot Co has undergone a change of control and has a new, wealthier owner.
NDC is the only applicant in the eight-strong .web/.webs contention set that refuses to resolve the contest privately.
A private auction would enrich all losing applicants to the tune of many millions of dollars.
By forcing a “last resort” ICANN auction, NDC has ensured that ICANN will be the only party to benefit from the auction proceeds.
Last-resort auction funds are placed in a separate ICANN account, currently worth over $100 million, which will be spent according to a currently undecided policy created by the ICANN community.
But Donuts’ complaint strongly implies that ICANN is forcing the auction to go ahead because it stands to benefit financially.
Donuts repeats the allegation from its recent joint Request for Reconsideration with Radix that NDC should be forced to disclose to ICANN, via a gTLD application change, the names of its alleged new directors.
It cites again a redacted email from NDC director Jose Ignacio Rasco which talks about fellow listed director Nicolai Bezsonoff no longer being involved with the application but that “several” new directors were.
It adds a quote about Rasco talking about “powers that be”, which Donuts takes to mean he is answering to someone else.
NDC is not listed in the lawsuit, which focuses on ICANN’s obligations under the new gTLD program application contract.
Donuts alleges, for example, that ICANN has a duty to fully investigate whether NDC has indeed changed directors.
ICANN’s Board Governance Committee said last week that ICANN staff had talked to and emailed Rasco about the allegations. Donuts says it should have at least talked to Bezsonoff too.
Donuts also claims that ICANN is not allowed to go ahead with a last-resort auction while there are still outstanding “accountability mechanisms” — including the RfR, which has not yet been formally closed out by the full ICANN board.
The lawsuit also reveals that Donuts simultaneously filed a complaint using ICANN’s less legally formal Independent Review Process, though documentation for that is not yet available.
ICANN’s most recent statement on .web, which just confirms that the .web auction will go ahead this coming Wednesday, was also posted on Friday. It’s not clear if that was posted before or after ICANN became aware of the lawsuit.
All new gTLD applicants had to agree not to sue ICANN when they applied, but Donuts argues that this is unfair and unenforceable.
DotConnectAfrica has had some success with this argument, though Donuts does not cite that case in its own complaint.
There’s been some speculation about the motives of Donuts and others in trying to delay the auction.
The lawsuit will not force NDC into a private auction, but it might buy Donuts and the other applicants more time to consider their strategies.
I’m getting into speculative territory here, but if NDC’s strategy is to win the .web auction as a Trojan horse for its alleged new owner, perhaps revealing the identity of that new owner would make it less likely to insist on a last-resort auction.
If NDC’s alleged new owner has a time-sensitive need for the revenue .web could bring (which could be the case if, for example, the owner was Neustar) perhaps the prospect of a long lawsuit and IRP case could make it more likely to accept a private auction.
If the alleged new owner was revealed to be Verisign — a company more likely than most to acquire .web simply in order to bury it — perhaps that revelation could spur remaining applicants into pooling their resources to defeat it.
It it was a big tech firm from outside the domain industry, perhaps that would strengthen Google’s resolve to win the auction.
That’s all just me talking off the top of my head, of course.
I have no idea whether or not NDC even has new backers, though its behavior in avoiding private auction goes against character and certainly raises eyebrows.
The Donuts complaint, filed as its subsidiary Ruby Glen LLC, can be read here (pdf).

.web auction to go ahead after ICANN denies Donuts/Radix appeal

The new gTLD .web seems set to go to auction next week after ICANN rejected an 11th-hour delay attempt by two applicants.
ICANN’s Board Governance Committee said yesterday that there is no evidence that applicant Nu Dot Co has been taken over by a deep-pocketed third party.
The BGC therefore rejected Donuts’ and Radix’s joint attempt to have the July 27 “last resort” auction delayed.
Donuts and Radix had argued in a Request for Reconsideration earlier this week that Nu Dot Co has changed its board of directors since first applying for .web, which would oblige it to change the application.
Its failure to do so meant they auction should be delayed, they said.
They based their beliefs on an email from NDC director Jose Ignacio Rasco, in which he said one originally listed director was no longer involved with the application but that “several others” were.
There’s speculation in the contention set that a legacy gTLD operator such as Verisign or Neustar might now be in control of NDC.
But the BGC said ICANN had already “diligently” investigated these claims:

in response to the Requesters’ allegations, ICANN did diligently investigate the claims regarding potential changes to Nu Dot’s leadership and/or ownership. Indeed, on several occasions, ICANN staff communicated with the primary contact for Nu Dot both through emails and a phone conversation to determine whether there had been any changes to the Nu Dot organization that would require an application change request. On each occasion, Nu Dot confirmed that no such changes had occurred, and ICANN is entitled to rely upon those representations.

ICANN staff had asked Rasco via email and then telephone whether there had been any changes to NDC’s leadership or control, and he said there had not.
He is quoted by he BGC as saying:

[n]either the ownership nor the control of Nu Dotco, LLC has changed since we filed our application. The Managers designated pursuant to the company’s LLC operating agreement (the LLC equivalent of a corporate Board) have not changed. And there have been no changes to the membership of the LLC either.

The RfR has therefore been thrown out.
Unless further legal action is taken, the auction is still scheduled for July 27. The deadline for all eight applicants (seven for .web and one for .webs) to post deposits with ICANN passed on Wednesday.
As it’s a last resort auction, all funds raised will go into an ICANN pot, the purpose of which has yet to be determined. The winning bid will also be publicly disclosed.
Had the contention set been settled privately, all losing applicants would have made millions of dollars of profit from their applications and the price would have remained a secret.
NDC is the only applicant refusing to go to private auction.
The applicants for .web are NDC, Radix, Donuts, Schlund, Afilias, Google and Web.com. Vistaprint’s bid for .webs is also in the auction.
The RfR decision can he read here (pdf).

Donuts joins fight to delay .web gTLD auction with emergency appeal

Donuts and Radix have filed an “emergency” appeal with ICANN in an attempt to get the forthcoming auction for the .web gTLD delayed.
The companies, both of which have applied for .web, say they have evidence that one of their rival bidders recently changed ownership without telling ICANN, in breach of application rules.
They filed a Request for Reconsideration (pdf) with ICANN (pdf) on Sunday, demanding the delay and an investigation into whether Nu Dot Co LLC is under new control.
The move follows speculation, which we reported last week, that Nu Dot Co is now being controlled by a major legacy gTLD registry player such as Verisign.
The evidence for the the change of ownership comes to light for the first time in the RfR. It’s an email from Nu Dot Co director Jose Ignacio Rasco to Donuts dated June 7. It reads:

Nicolai is at NSR full time and no longer involved with our TLD applications. I’m still running our program and Juan sits on the board with me and several others.

“Nicolai” is Nicolai Bezsonoff, who is listed as an NDC director in its .web application. NSR is presumably Neustar, where Bezsonoff went to work when it acquired .CO Internet.
“Juan” is Juan Calle, the third NDC director, CEO, and former CEO of .CO Internet.
Donuts and Radix believe that Bezsonoff’s departure and the apparent appointment of the unnamed “several others” as NDC directors gave NDC the obligation, under Applicant Guidebook rules, to inform ICANN of the changes.
The Guidebook states:

If at any time during the evaluation process information previously submitted by an applicant becomes untrue or inaccurate, the applicant must promptly notify ICANN via submission of the appropriate forms. This includes applicant-specific information such as changes in financial position and changes in ownership or control of the applicant.

(With that in mind, one wonders whether the acquisition of .blog at auction was strictly legit).
Donuts and Radix now want ICANN to delay the “last resort” auction, which is currently slated for July 27, and “conduct a thorough and transparent investigation into the apparent discrepancies and/or changes in NDC’s .WEB/.WEBS application”.
NDC is believed to be the only one of the eight .web/.webs applicants to be refusing to settle the contention set via a private auction, where the losers get an equal share of the winning bid.
If the set goes to ICANN’s last-resort auction, ICANN gets all the cash.
The final price of .web could easily be in the ball park of $50 million, so each applicant stands to lose several million dollars if the July 27 auction goes ahead as planned.
Radix and fellow .web applicant Schlund had previously written to ICANN to request the delay, but were rebuffed in a letter last week.
The decision outlined in that letter is what the new RfR challenges.
RfRs have a long track record of being dismissed by ICANN’s Board Governance Committee, very often because the requester has not supplied ICANN with any new information with which to change its mind.
That’s a risk here, too, given that ICANN seems to have been in possession of the Rasco email since June 22, before decision to go ahead with the auction was made.
However, that decision seems to have been made by ICANN staff. An RfR makes sure it gets the attention of the ICANN board of directors.

Donuts invests in Bitcoin startup

Donuts has made an investment in Netki, a company focused on digital wallets used in Bitcoin and other e-money systems.
Netki’s service is designed to make it easier to locate the wallets Bitcoin users use when they send and receive money, which are usually gibberish strings of around 34 characters.
The company service, when integrated into wallet providers’ offerings, converts these impossible-to-remember strings into easy-to-understand domain names.
An example given by Netki on its web site is the wallet name 1CpLXM15vjULK3ZPGUTDMUcGATGR9xGitv, which can instead be rendered as wallet.BruceWayne.rocks.
The company seems to make its money from end users by selling domain names with a higher mark-up than you’d usually expect. A .com via Netki is $20.99, for example.
It offers scores of TLDs, both generic legacy, new, and ccTLD, many of which are in the Donuts stable.
The size of the investment was not disclosed.
It’s the second investment to be announced from Donuts Labs. In May, it invested in “geofencing” startup GeoFrenzy.

Rightside refuses Donuts’ “opportunistic” $70m gTLD offer

Rightside has rebuffed Donuts’ semi-hostile takeover attempt for its portfolio of gTLD registry contracts.
The question now is: will Donuts up the offer from the $70 million already on the table?
In a pre-markets statement today, Rightside said the offer “undervalued” the assets.
CEO Taryn Naidu is quoted as saying:

After thoughtful evaluation, Rightside’s Board has determined that Donuts’ proposal significantly undervalues Rightside’s Registry assets. We believe Donuts’ proposal is an opportunistic attempt to acquire Rightside’s valuable portfolio of domain extensions with an undervalued price and in a manner that would not be in the best interests of Rightside shareholders.

The company reckons its gTLDs will be bringing in $50 million to $75 million in revenue a year in the next three two five years, which would represent substantial growth over current levels.
It made $2.6 million from the registry business in the first quarter this year.
Donuts’ offer could be considered “opportunistic” given that there’s some shareholder dissatisfaction with Rightside’s success rate with new gTLDs today.
Activist investor J Carlo Cannell and Uniregistry CEO Frank Schilling, both of whom own small but significant chunks of Rightside, have called on the company to get rid of some of its under-performers.
By announcing the offer publicly — apparently after months of private offers — Donuts might have been trying to capitalize on this unrest.
But pissed-off investors don’t necessarily want these gTLDs sold off cheap.
Rightside has 40 new gTLDs. A $70 million offer equals $1.75 million per gTLD. That’s fair way below the average sale price for gTLDs at ICANN auction, which is $7 million (or $3 million if you take the median).
Will Donuts now increase its offer, or back away?

At least one in 10 new gTLDs are shrinking

While the universe of new gTLDs is growing at a rapid clip, DI research shows that at least one in 10 individual new gTLDs are shrinking.
Using zone file data, I’ve also established that almost a third of new gTLDs were smaller June 1 than they were 90 days earlier, and that more than one in five shrunk over a 12-month period.
There’s been a lot written recently, here and elsewhere, about the volume boom at the top-end of the new gTLD league tables, driven by the inexplicable hunger in China for worthless domain names, so I thought I’d try to balance it out by looking at those not benefiting from the budget land-grab madness.
It’s been about two and a half years since the first new gTLDs of the 2012 round were delegated. A few hundred were in general availability by the end of 2014.
These are the ones I chose to look at for this article.
Taking the full list of delegated 2012-round gTLDs, I first disregarded any dot-brands. For me, that’s any gTLD that has Specifications 9 or 13 in its ICANN Registry Agreement.
Volume is not a measure of success for dot-brands in general, where only the registry can own names, so we’re not interested in their growth rates.
Then I disregarded any gTLD that had a general availability date after March 14, 2015.
That date was selected because it’s 445 days before June 1, 2016 — enough time for a gTLD to go through its first renewal/deletion cycle.
There’s no point looking at TLDs less than a year old as they can only be growing.
This whittling process left me with 334 gTLDs.
Counting the domains in those gTLDs’ zone files, I found that:

• 96 (28.7%) were smaller June 1 than they were 30 days earlier.
• 104 (31.1%) were smaller June 1 than they were 90 days earlier.
• 76 (22.7%) were smaller June 1 than they were 366 days earlier.
• 35 (10.4%) were smaller on a monthly, quarterly and annual basis.

Zone files don’t include all registered domains, of course, but the proportion of those excluded tends to be broadly similar between gTLDs. Apples-to-apples comparisons are, I believe, fair.
And I think it’s fair to say that if a gTLD has gotten smaller over the previous month, quarter and year, that gTLD is “shrinking”.
There are the TLDs.
[table id=42 /]
Concerning those 35 shrinking gTLDs:

• The average size of the zones, as of June 1, was 17,299 domains.
• Combined, they accounted for 605,472 domains, down 34,412 on the year. That’s a small portion of the gTLD universe, which is currently over 20 million.
• The smallest was .wed, with 144 domains and annual shrinkage of 12. The largest was .网址 (Chinese for “.website”) which had 330,554 domains and annual shrinkage of 7,487.
• The mean shrinkage over the year was 983 domains per gTLD. Over the quarter it was 1,025. Over the month it was 400.

Sixteen of the 35 domains belong to Donuts, which is perhaps to be expected given that it has the largest stable and was the most aggressive early mover.
Of its first batch of seven domains to go to GA, way back in February 2014, only three — .guru, .singles, and .plumbing — are on our list of shrinkers.
A Donuts spokesperson told DI today that its overall number of registrations is on the increase and that “too much focus on individual TLDs doesn’t accurately indicate the overall health of the TLD program in general and of our portfolio specifically.”
He pointed out that Donuts has not pursued the domainer market with aggressive promotions, targeting instead small and medium businesses that are more likely to actually use their domains.
“As initial domainer investors shake out, you’re likely to see some degradation in the size of the zone,” he said.
He added that Donuts has seen second-year renewal rates of 72%, which were higher than the first year.
“That indicates that there’s more steadiness in the registration base today than there was when first-year renewals were due,” he said.

Donuts’ new 50% price hike explained

Donuts’ new pricing model for 10 of its new gTLDs, announced yesterday, has caused some confusion for registrants and will make life more complex for registrars.
The company said yesterday that from October it plans to raise its wholesale fee by 50% for new registrations in .camera, .camp, .cleaning, .dog, .glass, .kitchen, .plumbing, .shoes, .solar and .toys.
It’s a substantial increase for domains that typically retail for between $25 and $40, and Donuts has clearly got an eye on profitability rather than volume.
But, crucially, the increased fees will not apply to renewals of existing registrations.
This introduces an unfamiliar pricing paradigm to the domain name industry — the notion of variable renewal pricing for non-premium domains.
Let’s do an example, assuming the wholesale fee is currently $10 (it isn’t, but Donuts does not disclose its wholesale fees).
If you were to register example.dog today or before October 1, the wholesale renewal fee for that domain would be $10 for as long as you held that domain. In 20 years, you’d still be paying Donuts $10 a year in renewal fees.
But if you were to register the same domain name after October 1, you’d be paying Donuts $15 a year in renewal fees.
Donuts told DI last night that the only way an already-registered domain in one of the affected gTLDs would see an increased fee is if it deletes and is re-registered.
The current, lower, wholesale fee will continue to apply if you transfer your domain to a new registrar. It will even apply if you sell your domain to a new registrant, according to Donuts.
In practice, how much you actually pay depends on your registrar, of course.
Registrars may decide to have variable renewal fees at the retail level too or, probably more likely, they may apply a uniform renewal price. In the latter case, current .dog domains would be 50% more profitable than domains registered from October 1.
Under the hood, the new model introduces complexities for registrars, described to DI by one registrar as a “pain”.
They’ll need to update their systems to account for the varying rates and will need to pass data about renewal tiers between each other when domains are transferred.
If Donuts were to raise prices every two years, and applied the hike to more gTLDs, pretty soon there’ll be a lot of tiers to track.
But variable pricing is not completely unheard of, and is regulated to an extent by ICANN.
The standard Registry Agreement, which applies to all Donuts’ gTLDs, forbids registries from charging some registrants higher renewal fees than others.
But there are exceptions. If the registrant explicitly agrees to the renewal fee at the point of registration, it’s legit. Donuts and others already use this exception in order to charge higher prices for premium name renewals.
The purpose of that part of the contract “is to prohibit abusive and/or discriminatory Renewal Pricing practices”, preventing registries imposing higher fees on customers that are using domains very profitability, for example.

Donuts to hike prices 50% on some TLDs

While some new gTLD registries are all about the giveaways and deep discounting, Donuts has taken the unprecedented decision to actually increase its prices.
The company announced today that it will add a whopping 50% to its wholesale fee for 10 of its TLDs.
The TLDs are: .camera, .camp, .cleaning, .dog, .glass, .kitchen, .plumbing, .shoes, .solar and .toys.
While Donuts does not disclose its wholesale fees, these domains typically retail for $25 to $40 for non-premiums.
We could be looking at a .dog at GoDaddy, for example, going up from $40 a year to $60 a year, if the increases are passed on proportionately.
None of the 10 TLDs in question have set the market alight, volume-wise. They’re all struggling around the 3,000 to 6,000 domains mark, according to zone file data.
Seven of the 10 zones have actually been shrinking in recent months.
All but one of them went to general availability in the first half of 2014, so have been on the market about two years.
The new prices will kick in October 1, Donuts said.
Renewal prices for domains registered before that date will renew at their original wholesale fee, the company added.

Donuts quietly buys .shopping from Uniregistry (and .jetzt)

Just a few months after Uniregistry bought out Donuts to win .shopping, Donuts has bought the pre-launch gTLD back.
Donuts has also bought live gTLD .jetzt from a Swedish company.
The .shopping deal is a weird one.
Uniregistry and Donuts were the only two applicants for .shopping, until Uniregistry paid Donuts to withdraw its application back in January.
Uniregistry went on to sign its ICANN Registry Agreement in March, but less than a month later, April 27, transferred the contract to Donuts.
.shopping had been entangled in the .shop contention set, which was eventually resolved when GMO Registry paid $41.5 million at ICANN auction.
Despite the unusual circumstances, Uniregistry CEO Frank Schilling said today it was just the simple sale of a string. Donuts declined to comment. Neither revealed a price.
The second Donuts acquisition, closed April 26, was of .jetzt, which was applied for, delegated to and managed by New TLD Company AB of Sweden.
That gTLD, which is German for “.now”, has been in general availability for almost two years but has only 5,600 names in its zone file.
Donuts declined to comment, but it seems to me we’re looking at a failing gTLD looking for a white knight in this instance.

Donuts wins .doctor

Donuts has emerged the victor of the .doctor gTLD contention set.
Competing applicants Radix and The Medical Registry both withdrew their applications last week.
The string wasn’t due to head to its ICANN last-resort auction until May 25, indicating that the contention set was settled privately.
.doctor has been the subject of some controversy.
ICANN’s Governmental Advisory Committee had insisted that .doctor should be reserved purely for licensed medical doctors.
Donuts had complained that this would rule out use by any of the myriad other types of doctor, as well as registrants using “doctor” in a fanciful sense (like “rug doctor” or “PC doctor”).
ICANN initially accepted the GAC advice, but changed its mind this February, declining to impose such restrictive language on .doctor’s contractual Public Interest Commitments.
So it seems that .doctor will be generally unrestricted.
Donuts will have to sign up to the standard “Category 1” PICs, which require the registry to work with relevant regulatory bodies, however.